Law of Diminishing Marginal Utility

The Law of Diminishing Marginal Utility (LDMU) states that the marginal utility of a commodity decreases as more units are acquired. It is a fundamental law in economics and explains how the utility derived from any goods or services decrease with increase in consumption.

The Law of Diminishing Marginal Utility is also known as Jevons Paradox. It was first introduced in 1865 by William Stanley. This law is a generalization of the principle that all goods and services have an intrinsic value and utility. As such, it is not just limited to economics but also applies to other fields such as marketing, management, and psychology.

Limitations of Law of Diminishing Marginal Utility

There are some limitations of the “Law of Diminishing Marginal Utility”. Some of such limitations are:

  • Suitable Units
  • Suitable Time
  • No change in consumers’ taste
  • Normal Person
  • Constant Income
  • Rare Collection
  • Fashion
  • Not applicable to Money
  • Other possessions

Suitable Units

Consumers generally consume commodities at suitable units. When commodities are consumed at a suitable unit, its utility is constant. We barely consume something till we lose its utility. So, in such a case, this law of diminishing marginal utility is not applicable.

Suitable Time

This law is applicable when a commodity is consumed within a certain time period. The time factor is important for this Law of Diminishing Marginal Utility. For instance, If we consume product X at 10 a.m. in the morning and the same product X at 3 p.m., there will not be any change in the utility of that product X. In such a wide interval, one might not have the diminishing marginal utility.

If we consume commodity X at an interval of 10 minutes, this law will be applicable as the utility for the commodity will decrease with extra units of consumption.

When we consume the same product at different seasons, the utility may remain the same.

No change in consumers’ taste

For diminishing marginal utility, consumers should develop the change in taste over time with the consumption of additional units of the commodity. If the consumers’ taste remains the same, the Law of Diminishing Marginal Utility is not applicable. 

This means, if consumers are not losing the taste with additional consumption and are actually enjoying the commodity, this law doesn’t act.

Normal Person

Marginal Utility concept is applicable to normal natural people, which means an individual which shows rational behavior. Diminishing Marginal Utility doesn’t hold true abnormal individuals like misers.

If consumers behave in queer and irrational manner, this law will not hold true.

Constant Income

Constant income is one of the essential considerations for the Law of Diminishing Marginal Utility. For this law to be valid, we keep the income of consumers constant. The change in income of the consumer can impact the behavior of consumers. When consumer income increases, the perceived value of a commodity might change affecting the utility. When income is constant, the utility of the product is constant.

Rare Collection

When commodities belong to rare collectibles, this law does not hold true. Rare collections or antique commodities are not normal goods, therefore consumers have different approaches towards such collectibles. For a Numismatic, collection of more coins provides satisfaction. The more s/he collects coins over  time, the more it provides satisfaction.  


Utility of a commodity also depends on the fashion i.e. what is currently trending. When there is a trend of something, the utility is always high for the commodity that is trending, consumption does not affect in this case. Similarly, if something is out of fashion, utility goes down despite the consumption.

Not applicable to Money

Money doesn’t follow the rule of diminishing marginal utility. In the case of money, the more you have, the more you want. All consumers want money and the utility of money is always high

Other possessions

Sometimes, the utility of one commodity is dependent on another commodity. Law of diminishing marginal utility does not consider these dependency commodities. This law deals in a single commodity at a time.

For instance, the utility of car driving is directly affected by the demand and supply of petrol in the market.


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